Customer Charge On behalf of all DNs 19 November 2010

Customer Charge Background ______________________________________________________________________________________________________________________________ Originally determined by Transco Designed to recover particular costs, mainly relating to provision of emergency services, and the repair, maintenance, replacement and depreciation of service pipes funded by transporter Generate ~30% of Collected Revenue Over 90% is collected from SSPs (c.£30/SSP annually)

The current Customer Charge ______________________________________________________________________________________________________________________________ SPs with AQ > 732MWh operate on a capacity based power function SPs with AQ between 73.2MWh and 732MWh operate on a linear capacity based function and an additional per supply point function. SPs with an AQ of less than 73.2MWh operate on a linear capacity based function. All current DN charges are based on these original National basis charging structures

Why change? ______________________________________________________________________________________________________________________________ The Customer Charge has not been fundamentally reviewed since the original charge was determined by Transco/Ofgas Ofgem report “Conclusions on the review of the structure of has distribution charges” – costs underlying the Customer Charge should be reviewed DNs required to ensure charges are cost reflective Need to rebase charges on a network rather than national specific basis

Recent activity ______________________________________________________________________________________________________________________________ Final areas of methodology in the 2006 Ofgem report Relevant costs identified in PC05 DNs seeking to consult on this area to enable potential change at April 2012 in line with other planned changes DNs wish to engage input and opinion from shippers at special DCMFs (19 th November & 17 th December)

Potential timeline ______________________________________________________________________________________________________________________________ DateActionGovernance November 2010Consult and engage with shippers at special DCMF Receive feedback and further ideas, to enable development of UNC Modifications Existing DCMF December 2010DNs develop Modifications and circulate in draft for comment/discussion at DCMF Existing DCMF 2 January 2011DNs and/or shippers issue Modifications to JO for inclusion at next Modification Panel, recommending issue for consultation UNC 20 January 2011Modification Panel decides pathway:  Workgroup  Consultation (15 WD) UNC 11 February 2011Final date for representationsUNC 17 February 2011FMR not ready for 5 days in advance due to close out dateUNC 17 March 2011Modification Panel votes on recommendationUNC After Ofgem decisionJO update UNC with legal text if it includes transitional arrangementsUNC 1 April 2012Implementation DateUNC

Costs underlying the Customer Charge ______________________________________________________________________________________________________________________________ Emergency costs All costs associated with emergencies on service pipes and supply points Service pipe costs Pipe replacement costs and depreciation Indirect costs Allocation of support and employee overheads

Potential Customer Charge methodology ______________________________________________________________________________________________________________________________ A single fixed daily charge per supply point for each network A two-rate fixed daily charge for SSPs and LSPs for each network A derived capacity charge No change Another method

Potential Customer Charge methodology ______________________________________________________________________________________________________________________________ A single fixed daily charge per supply point for each network Emergency costs show no strong correlation with supply point size No increased likelihood that a larger supply point will have a gas emergency No significant difference in cost to deal with an emergency at a large supply point than at a small one Simplest possible charging outcome

Potential Customer Charge methodology ______________________________________________________________________________________________________________________________ A two-rate fixed daily charge for SSPs and LSPs for each network Service pipes can be divided into domestic and non- domestic supply point related costs, broadly corresponding to 73.2MWh (LSP) “10 metre allowance” element of service depreciation allocated across domestic supply points only or allocated across all supply points

Next steps ______________________________________________________________________________________________________________________________ Views of Shippers and others sought on: Likely shipper implementation impacts and timescales for either of the two options Other options for the structure of the customer charge which should be considered Pros & Cons of aligning a change to the customer charge structure with other planned changes for April 2012 Other implementation issues Other Questions / Discussion Points / Feedback Next DCMF – 15 th December 2010